Competitive Dynamics in the Watch Industry: the Swatch Case Study

School of Business and Economics

Anja AnsénAlexandre BankowskiLuca Castellanza


• Introduction

• 5 Forces Analysis

• SWOT Analysis

• Strategic Advise

• Conclusion


1


Introduction 5 Forces Analysis SWOT-Analysis Strategic

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Introduction


2


Internal Rivalry

● 3-ratio concentration index = 45.8%● 8-ratio concentration index = 64.1%● HHI = 0,08009

●Different logics for luxury and low-cost●High but non-measurable effect of counterfeiting


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Internal Rivalry

● Premium: vertically integrated, importance of brands

●Budget: watch assemblers, brands are less established

●Common: streamlined production process, -competition on design and new models,- after-sale service, warranty and quality against counterfeiting


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Entry

●Budget: basic know-how, access to commodities or components

● Premium: difficult to establish a brand, owned distribution channels, Swiss government support, Swiss vertical integration


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Complements● Jewelry, clothes, fashion accessories

Substitutes

● Budget: Smartphones (need of “telling time”)

● Premium: luxury goods (need of self-establishment, social recognition etc.)


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Substitutes - Smartwatches

● Emerging and growing trend, covers all market segment

● Purpose: “make life easy”● Technologic firms: Apple, Samsung etc.● Watchmakers (Fossil, LVMH etc.) trying to

catch up●Sales of traditional watches have been decreasing recently, but it's not sure to what extent it's been due to smartwatches.


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Supply Power● Big integrated groups: sensible to

fluctuations in precious materials● Independent manufacturers: are supplied

by big groups, for whom they are an accessory source of revenue

● Low cost: need for commodities and/or cheap mechanisms


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Buyer power● Premium: low price elasticity● Budget: higher price elasticity● Common: relatively inexpensive goods,

infrequent purchase, low switching cost, few users are competent

● Retailers: bargaining power greater than end customers, no real threat of backwards integration, rely on manufacturers to carry on their business.


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Summary


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Premium segment

Budgetsegment

Internal Rivalry

Moderate High

Entry Low High

Substitution Moderate Moderate-High

Supply Power Low Moderate

Buyer Power Low Moderate


3


The Swatch Group

• 19 brands (low range, middle range and premium)• Manufacturer of watches, components, movements and

electronic systems

Introduction 5 Forces Analysis

SWOT-Analysis

Strategic advice

Conclusion

18.30%

15.70%

11.80%5.20%4.70%3.90%

3.40%2.10%

34.90%

Swatch GroupRichemontRolexFossil GroupLVMHCitizenSeikoCasioOther

Competitors in the watch industry (by market share in 2013)

Currently, the Swatch Group is market leader.


Strengths

• Vertical integration• Balanced product offering• Financial prowess• Overall global presence• Commitment to labour• Innovativeness (design, materials and processes)• Electronic systems


SWOT-Analysis

Strategic advice

Conclusion

Weaknesses

• Low social media presence• Limited presence in the US• High labour costs


Opportunities

• Smartwatches• Online retailing• Valuable strategic alliances • Asian market growth


SWOT-Analysis

Strategic advice

Conclusion

Threats

• Counterfeit products• Price volatilty of raw materials• Industry inertia• Exchange rate fluctuations


Aspects of SWOT-Analysis that the strategy recommendation builds on


SWOT-Analysis

Strategic advice

Conclusion

The Swatch Group

Strengths

• Vertical integration• Balanced product offering• Financial prowess• Commitment to labour• Innovativeness • Electronic systems

Weaknesses• Low social media presence• Limited presence in the US

Opportunities

• Smartwatches• Online retailing• Valuable strategic alliances

Threats

• Counterfeit products


Discussion question:

Do you think that the selection of relevant strengths or weaknesses (as well as opportunities and threats) is useful due to the limited scope of this paper?

Do you agree with the above selection?


SWOT-Analysis

Strategic advice

Conclusion


4


Maintain competitive advantage by…


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Low/middle segment

• Share strategy• Try to keep price parity with competitors

• Let benefit advantage drive share increases

Premium segment

• Margin strategy • Offer differentiated products

• Charge higher price

• Defend critical capabilities and resources:

• Process efficiency• Investment in R&D • Commitment to skilled labour• Sport collaborations• Limit supply to competitors• Exploit access to owned mines


First strategy: Horizontal differentiation with smartwatches

44%of watch executives see smartwatches as the “next big thing“ according to a study led by Deloitte in 2014

• In April 2015, Apple has released the first model of a smartwatch, “iWatch“

• Apple iWatch is an all-in-on smartwatch• Price: from 399 to 14,000 euros


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• In July 2015, Swatch has released the “Touch Zero One“

• First touchscreen wartch built with beach volleyball in mind

• Price: 120 euros



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• Merging of sophisticated technology with Swatch Group design capabilities:

• Develop technological capabilities by means of strategic alliance with Google and Intel

• Benefits from knowledge spillover

• Combine newly acquired technological knowhow with design

• Tailored products with regard to features to customers needs:



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Second strategy: Product improvement

Swatch Group decision in 2011 to phase out the supply of ETA movements to rivals

• Counterfeit is considered as an important weakness for the Group

• More important risk for the low and middle segment



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• In the luxury segment, Swatch should further advance quality of components to take an advantage on its competitors by 2020

• In the low and middle segment, Swatch Group should propose customizable watches for the customers:

• Create a new eshop platform• Each customer could create its own

watch• Price would vary depending on the

features used

• Swatch Group should also enhance its jewellery offerings in order to complement with its watches products



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Third strategy: Increase integration in the US



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• Distribution is a critical resource to enter the industry, but for Swatch Group should be not too hard to establish a partnership

• Swatch Group should increase partnership with some important retailers

• Swatch Group should also increase the number of stores in the US:

• Hour Passion• Tourbillon Boutique



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Forth strategy: Increase brand equity

Watch executives rate social media as the most important marketing channel, closely followed by print and then blogs



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• Explore new collaborations with fashion labels

• Celebrity endorsement for the middle range and the premium segement

• Increase social media presence of undevelopped brands:• Tailored social media campaigns with youtubers • Advertising • Event promoting


5



advice Conclusion

Innovation beyond

traditional watches

Smartwatches, jewelry,

customization

Differenciation in marketing

strategies

Celebrity endorsment, social media presence, collaborations in

fashion

Increasing the Group

presence in the USA

Partnership with retailers, new

stores


Questions and Comments



References